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any outlays of cash. But Mr. Frazier’s calculation of asset-
based value assumed liquidation. He argued that the prepaid
accounts had no value to the buyer who intended to liquidate
because they could not be sold and they could not be used to
offset costs of the operating company (since liquidation was
intended). We find several difficulties with Mr. Frazier’s
approach. First, Mr. Frazier himself suggested that, depending
on the agreements with lenders, Dunn Equipment might be able to
receive prepaid interest back from the lenders if it was able to
pay off the principal of the loans during liquidation. Second,
in assigning no value to the prepaid accounts, Mr. Frazier
apparently assumed that liquidation would take place almost
instantaneously. Even if the buyer intended to liquidate, the
prepaid accounts would still have some value to the buyer because
liquidation could not be accomplished instantaneously and the
company would continue to operate for a time, utilizing the
prepaid accounts to offset liabilities that came due. Finally,
and most important, given that the number of shares of stock in
issue was not large enough to cause liquidation, and that other
shareholders were unlikely to agree to liquidation, we think the
chance of liquidation was sufficiently small (although not
nonexistent) that the hypothetical buyer and seller would not
reduce the value of the prepaid accounts in considering an asset-
based value of the company.
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